13.08.

2021

I. DEMAND FOR AUDITING AND ASSURANCE

SERVICES

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ECONOMIC DEMAND FOR AUDITING

Why do many largest companies spend millions

of pesos each year for their annual audit?

ECONOMIC DEMAND FOR AUDITING

What are assurance services?

- used to describe the broad range of information enhancement services

performed by certified public accountant (CPA) that are designed to enhance
the degree of confidence in the information.

The assurance services consists of the following:

a. Increase the reliability of information
b. Involve putting information in a form or context that facilitate decision
making

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ECONOMIC DEMAND FOR AUDITING

- Significant portion of the assurance services provided by CPA is attestation
service
- In attestation engagement, CPAs provide report on subject matter or an
assertion about the subject matter. One of the most sought-after attestation
services is the examination or audit of historical financial statements
- Focus on the Audit and Assurance Services involve the reliability
enhancement of accounting information

ECONOMIC DEMAND FOR AUDITING

PHILOSOPHY OF AN AUDIT

- The auditor’s role is to determine whether the report prepared by the

managers conform to the contract’s provision.
- Business institutions and individuals must maintain records of their financial
condition and progress in preparation for audit examination to increase
credibility of the financial reports.
- A free market economy can exists only if there is sharing of reliable
information among parties that have interest in the financial performance of
an organization.

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ECONOMIC DEMAND FOR AUDITING

In a financial statement audit, the auditors undertake to gather evidence to
obtain high level of assurance that financial statements are free of material
misstatements due to fraud or errors and that they are presented in accordance
with appropriate accounting framework.

When the auditor has no reservation about management FS or internal controls,

the auditor will issued an UNQUALIFIED OPINION OR AUDIT REPORT..

ECONOMIC DEMAND FOR AUDITING

Auditing requires high level of technical competence, freedom from bias, and
concern for integrity of the financial reporting process.

The public expect the auditors to

a. Find fraud
b. Portray the requirement of accounting principles adopted by accounting
standard setters
c. Be independent of the management

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IMPORTANCE OF AUDITED FINANCIAL

STATEMENTS
Audited financial statements are the accepted means by which corporations
report their operating results and financial position.

Financial statements prepared by management and transmitted to outsiders

without first being audited by independent public accountants leave a credibility
gap.

IMPORTANCE OF AUDITED FINANCIAL

STATEMENTS
Users of Audited Financial Statements
Users Types of Decision
Management Review of performance, make operational decisions.
Report results to capital market
Stockholders Buy or sell stocks
Bondholders Buy or sell bonds
Financial Institution Evaluate loans decisions, considering interest rates,
terms and risk
Taxing authorities Determine taxable income and tax due
Regulatory agencies Develop regulations and monitor complaince
Labor union To make collective bargaining decisions

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IMPORTANCE OF AUDITED FINANCIAL

STATEMENTS
Users of Audited Financial Statements
Users Types of Decision
Court System To assist the financial condition of a company during
litigation
Vendors Assess credit risk
Retired employees Protect employees from surprises regarding pensions
and other post-retirement benefits

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THE ASSURANCE ANALOGY AND THE

PHILIPPINE STANDARDS ON AUDITING (PSAS)
An audit provides reasonable assurance of detecting material misstatements of
the financial statements and noncompliance with laws that have a direct and
material effect on the determination of financial statements amount.

The International Auditing and Assurance Standard Board (IAASB) issues

pronouncements designed to foster the development of consistent worldwide
auditing standards while the Auditing and Standard Practice Council (AASC)
reviews and recommends for approval to the PRC-BOA their adoption fo PSAs

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THE ASSURANCE ANALOGY AND THE

PHILIPPINE STANDARDS ON AUDITING (PSAS)
THE ASSURANCE ANALOGY AND THE PHILIPPINE STANDARDS ON AUDITING (PSAs)

In the Philippines, the law that regulates the Practice of Accountancy (RA 9298)
provides that the Professional Regulatory Board of Accountancy shall monitor
the conditions affecting the practice of accountancy and adopt such measures to
enhance and maintain the high professional, ethical and auditing standards
including promulgation of accounting and auditing standards, domestic and
international. International financial markets would be faciliatated if auditing
and accounting standard were more uniform

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SUMMARY
Auditing is in demand because it plays a valuable role in monitoring the
contractual relationship between entity and its stockholders, managers,
employees, and debt holders. CPA have been charged with providing audit
services because of their reputation of competence, independence, objectivity
and concern for the public interest. As a result, they are able to add credibility to
information produced and reported by management to outside parties

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